NEW YORK? It looks as if some industry ?experts? may have underestimated the power of the hotel business. Lodging companies have enjoyed a healthy start in 2000, causing analysts to revise their earlier forecasts to reflect these upbeat trends which are now expected to continue into 2001. An up tick in RevPAR growth? the first in several years? is at the root of the industry?s health, which is being spurred by a rejuvenated U.S. economy, strong consumer confidence and steady demand growth. Even with rising oil prices looming, experts believe that RevPAR will continue to grow at a rate higher than inflation which means another lucrative year for those who were not scared away by earlier reports of a gloomy lodging future. Companies such as Starwood Hotels & Resorts and Hilton Hotels Corp. have demonstrated this momentum by posting RevPAR increases of 9.5% and 4.7%, respectively, in the first quarter of 2000. According to Jason Ader, senior managing director at Bear Stearns & Co., people were too quick to assume a downturn was near. ?Expectations for the hotel industry are just too low,? said Ader. He said that people should have more upbeat expectations with regard to lodging, particularly since the first quarter reporting season [for 2000]?was the strongest we have seen in a long time among the hotel stocks.? And with construction starts on the decline, the picture for RevPAR growth in 2001 may be even better than anticipated as well. According to PaineWebber statistics, U.S. hotel construction starts decreased 29% in April 2000 from the previous year and the three-month moving average of starts ended April 2000 was 6.5% below that of the year-ago period. Rooms starts in 1999 were 148,700 and are expected to decrease slightly to 148,200 in 2000. What this means is that supply growth will slow, growing at 3.7% this year? near parity with demand growth of 3.6%, according to Bear Stearns & Co. This will cause occupancy to remain flat in 2000 at approximately 63.2%. Recent upward revisions in GDP growth in 2000, to 4.4%, will support solid demand growth and allow hotels to continue to command high ADRs although they will not increase at a rate higher than in 1999, said analysts. If the momentum from the first half of 2000 continues as expected, it will mean improved profitability, said Robert Mandelbaum, director/the Hospitality Research Group for PKF Consulting, ?as long as the economy holds up.? ?We are plateauing at the top,? said Mandelbaum. ?What we have is a competitive environment that forces everyone to work harder, but it?s still healthy enough to show profit improvements,? he said. A study by PKF Consulting reported that revenue for U.S. hotels is expected to rise 4.5% in 2000, up from 3.9% in 1999. And while all segments of the industry are experiencing moderation in growth of revenues versus the mid-1990s, certain types of hotels are outperforming others. ?Large resorts and full-service convention hotels are doing better in terms of revenue growth than limited-service hotels,? said Mandelbaum. ?That forced limited-service and all-suite hotels to control costs the tightest. Hotels that are doing well are still cutting costs, mostly in areas that don?t affect guest services.? But, Mandelbaum warned, don?t overlook growing consumer resistance to traditional pricing of hotel rooms now that the Internet has provided the masses other means with which to bargain. ?These consumers feel empowered,? he said. Even so, the industry will turn over a considerable profit for the next several years. As reported in Bear Stearns & Co.?s Lodging Almanac, profits are projected to continue to increase at a compound annual growth rate of 6.8% during the 1999-2002 period. In 2000, profitability is slated to reach $25.2 billion, up from $22.6 billion in 1999. General cost controls and the deleveraging of the lodging industry have helped contribute to that number. Taking the above factors into consideration, analysts said they don?t e
